The year 2005 was a busy and exciting year for China’s banking sector.

A series of financial reform measures made their formal entrance onto China’s financial market in succession, including: the launching of “hard constraints” on capital, accelerated reforms of interest rate liberation, the release of short-term financing bonds, and standardized development of the wealth management market etc. These are of pioneering significance to the development of China’s financial market, and will surely be documented in history.

As China witnesses these innovative developments in its financial sector, CEB, a commercial bank fairly inactive in the past, frequently shows elegant glamour at the front line of the industry, drawing wide attention from its peers:

It is the only commercial bank authorized to manage the State’s treasury bills as the agent;

It is the only commercial bank to win Quality Certification Award for Settlement from JP Morgan for five consecutive years;

It is among the first authorized lead underwriters for short-term financing bonds; its underwriting performance far exceeds its peers.

It simultaneously won the qualifications of custodian and account manager for Enterprise annuity Fund;

It is the first bank in China to launch Renminbi wealth management products; its wealth management brand takes the leading position among its peers;

……

Innovation helped CEB to frequently seize the opportunity in marketing its new products; and marked the most prominent characteristic and the most intensive motivation for CEB’s developments in 2005.

Follow the Tide

In recent years, China’s financial market has undergone a series of changes: “loosen currencies and tight credit”, accelerated development of interest rate liberation, and the enhanced function of hard constraints on capital. Commercial banks, especial small and medium ones are facing more and more pressure. In view of this, a majority of small and medium commercial banks have turned to a new set of strategic choices: to change the modes of growth, accelerate business innovation, and actively develop new business that are not capital intensive and have high overall returns. An emerging phenomenon is that most banks are competing to timely launch a wide variety of financial products by right of new opportunities in the financial market, so as to satisfy the clients’ needs to the largest extension. CEB has carefully analyzed the situation and prudently grasped the opportunity, raised innovation to the height of transforming development models, improved the level of competition and strengthened core competitiveness of the business. At a meeting on the Bank’s future development strategy held at the beginning of the year, President Guo You explicitly pointed out that business model and structure shall be improved, and internal management capability and business efficiency shall be enhanced; resource allocation and asset portfolio shall be optimized so as to give prominence to key business, cultivate advantages, establish brands; and steadily promote the value of the Bank and the return to stockholders. At the meeting, it was determined that the Bank shall follow the business principles of “achieving outstanding performance, expanding personal business, and strengthening fee-based business and wealth management business”.

During the past year, in accordance with the principle of “improving the foundation, giving priority to key business, nurturing characteristics, and accelerating development”, CEB gives prominence to promoting the business of personal wealth management, consumption credit, debit card and credit card, strengthens wealth management business and fee-based business, and endeavors to establish the “Sunshine Wealth Management” brand. The featured products and services of CEB are important driving forces to the rapid development of personal business, and help establish as the golden brand of “wealth management bank, excellent bank”.

Seize Opportunity

Under the clear guideline of business development strategy, CEB continues to enhance innovation, promote marketing and development of new businesses, and has frequently seized valuable opportunities in a series of competitions.

Looking back, the most successful business innovation of CEB is the advantageous business “Sunshine Wealth Management”. On January 14th, shortly after New Year’s celebration, CEB held a press conference in Beijing. Relying on the advantage incurred by first launching of domestic and foreign currency wealth management products, CEB put forward the first Sunshine Wealth Management Product centering on education – Plan E in the domestic market. Plan E covers a broad range of wealth management products including “Golden Scholar Nurturing Plan” in Renminbi, “Overseas Doctorate Study Plan” and “Reassuring Overseas Study Plan” in foreign currencies, as well as numerous kinds of services such as wealth management seminars, deposit certificate, credit cards, purchase of foreign currencies for going abroad, wealth management plans designed for high-end customers etc. Plan E is an ideal product for parents who expect academic success from their children.

As China’s wealth management industry becomes increasingly more standardized, in March 2005, China Banking Regulatory Commission explicitly stated in its notice that deposit cannot be a tied product when selling Renminbi Wealth Management products.This had an immediate negative impact on the expected rate of return of the Banks’ newly promoted wealth management products. The expected rate of return for one-year-term products dropped to between 2.50% and 2.90%. In addition, the continuous drop of the rate of return for Central Bank’s notes dealt another heavy blow to the return rate of Renminbi wealth management products, causing tremendous pressure to products of this kind. On March 17th, the Central Bank lowered the rate of excess reserves, which posed another serious challenge to Renminbi wealth management products. Under tremendous market pressure, domestic Renminbi wealth management products that mainly invest in Central Bank’s notes have entered into a very difficult period, and had sunk into slump.

At that moment, after careful study of the market, CEB timely brought forward Sunshine Wealth Management Plan A+, this for another time broke up the dilemma.Plan A+ makes use of the rules of Quanto: Renminbi is the basic currency used in transactions of the principal; the investors’ returns are linked with underlying assets and derivatives of the international financial market through swap transactions; returns are realized based on the actual performance of basic assets, basic transactions and relevant agreements; when the Plan matures, CEB returns the principal in Renminbi, and returns in US Dollars to investors. China Everbright guarantees that the investors’ principal suffers no loss. Due to the sluggish investment market and scarce effective wealth management products in the domestic markets, CEB effectively expanded the investment channels for its investors, easily realized the dreams of investment in Renminbi and returns in US Dollars. At the same time, CEB brought domestic personal wealth management to a higher stage for competition.

As new products targeting at the private sector and the wealth management sector are continuously brought forward the market, CEB is also making fresh strides in the corporate business, drawing much attention.

Towards the end of April, CEB was again authorized to take over non-tax fiscal revenue for the government. This is another time that CEB gains the agency qualification from the ministry of finance since successively obtaining the agency qualification of direct and authorized fiscal expenditure from the government. ,CEB is the only commercial bank fully authorized in China to manage the state’s financial treasury. This demonstrates CEB’s strong competitiveness.

On May 25th, after the release of Administrative Measures on Short-term Financing Bonds Issued by Securities Companies, CEB was one of the first few to be authorized as lead underwriter for short-term financing bonds. This was conducive to boost market innovation and promote the transitions from single credit products to combo financing products and comprehensive financial services, from operation mainly in the secondary market to operation in both primary and secondary market, from traditional interest margin revenue to package revenues including interest margin and fee-based business revenue etc. This business helped to provide high quality clients with one-package diverse comprehensive financial products, and gained yet another edge in competing for high quality clients and high-end clients.

On August 2nd, the Qualification Assessment for Operation of Enterprise annuity Fund which drew much attention had finally come to a conclusion: CEB was authorized as both the custodian and account manager for Enterprise annuity Fund, becoming one of the four domestic commercial banks to be awarded with this honor. This improved CEB’s competitiveness and its social influence in the field of social security, and further demonstrated its solid strength in the business innovation among domestic commercial banks.

Besides, within the same year, CEB successively launched new services and products, including Traveling Abroad Link, Small Business Owner Loan, Renminbi Interest Rate Swap and Foreign Exchange Debt Hedging etc. These services and products were well received by the public and have gained much recognition and support.

CEB has achieved fruitful results in business innovation, demonstrating the philosophy of seeking development and profit through innovation is right and forward-looking.

Tasting the Fruit of Success

Being authorized for managing short-term financing bills, Enterprise annuity Fund and the Central Government’s financial payment is only the first step in CEB’s long march towards success; clients marketing and new-product development are CEB’s real business priorities. In order to timely grasp market opportunity and attract quality clients to promote the long term development of the Bank, CEB has engaged in a highly motivated team effort, involving all levels of the business including the President, the management team and various departments and branches. The leaders are deeply involved in leading the whole enterprise in competing for higher market share. This marketing scale and efforts are unprecedented in CEB’s recent history.

Such painstaking effort has been paid off. CEB’s efforts and investment have achieved fruitful results in return; the following statistics speak for themselves:

Wealth Management: By the end of November 2005, CEB had realized total sales of RMB 20 billion for its Renminbi wealth management products, and sales of near USD 700 million for its foreign currency wealth management products, the total volume of both items added up to RMB 25 billion. Compared with the sales volume of RMB 17 billion in 2004, the sales value in 2005 increased RMB by 8 billion, up by nearly 50%. Due to a strong wealth management business, by the end of November, CEB’s total savings deposit reached RMB 75.076 billion, increased by RMB 20.968 billion over the beginning of the year, and completed the Bank’s annual business plan ahead of schedule.Balance of savings deposit accounted for 17.35% of China’s Everbright Bank’s total deposit, representing an increase of 3.34 percentage points compared with the beginning of the year; the increase in savings deposit accounted for 45.05% of the total, almost half of the latter.

Short-term Financing Bills Underwriting: After being authorized as lead underwriter for short-term financing bills, CEB has issued short-term financing bills of near RMB 40 billion for several large enterprises including China Minmetals Corporation, China Unicom, Jiangsu Communications and Shenhua Group, accounting for 38% of total issuance in the market. CEB is in the lead both in terms of the number of projects underwritten and the amount of underwriting, bringing in impressive revenue from distribution and financial consultation, as well as trade settlement and financing.

Agency Bank for the State’s Fiscal Expenditure: By the end of October, China Everbright has established direct payment relations with 80 first-class budgetary units of the ministry and committee as well as their subordinate units, and authorized payment relations with 28 first-class budgetary units of the ministry and commission level as well as their grassroots; total payments made on behalf of the Central Government reached RMB 163.2 billion, among which direct payment made up 65% of the market, ranking number one in the market.

Enterprise annuity Fund: By the end of November, CEB had signed with 14 clients, bringing over RMB 300 million worth of deposit.

Bank-Customs Link: By the end of November, Bank-Customs Link was available in all of the 30 branches of CEB. The service is applied at 27 first-class Customs and 237 Customs ports. In November, total transaction of Bank-Customs Link hit RMB 110 million, 13 times of the sum of September and October; Bank-Customs Link is expected to see very rapid growth.

Preliminary statistics shows that in the first eleven months of 2005, CEB achieved net income of RMB 644 million from fee-based business, an increase of RMB 249 million over last year, up by 63%. Among which, the increase due to business innovation was over RMB 300 million; the innovative business income are taking up an increasingly share of fee-based business income.

Goal: Become an Excellent Bank

Becoming an excellent bank is the long term goal of CEB.

As a medium-scale commercial bank with limited material and human resources, it is not practical for CEB to target at all potential clients in marketing. Therefore, it is essential to channel resources together, focus on the priorities and seek development from elegant products and services. As competition among commercial banks is converging towards homogeneity, the forward-looking and scientific decisions of CEB identify future market choices in an objective and pragmatic manner.

In fact, in recent years, CEB has frequently seized opportunities in the new business fields, giving prominence to its leading image. For instance, CEB has been the bellwether in the wealth management market since last year; the philosophy of “accumulating wealth and brightening the future” is deeply ingrained in people’s mind; in many regions, “Need Wealth Management? Go to Everbright!” is no longer an empty slogan but a consensus agreed by most people. Furthermore, in emerging business areas such as domestic factoring, short-term financing bonds and enterprise annuity, CEB is well ahead of the game as well.

Facing the fierce market competition and pressure from peers, how should CEB maintain its position as the “bellwether” and “trend setter” How should CEB continue its innovation and explore new areas for potential development Top management of the Bank believed, viewing from the current and future development trends of the banking sector, retail business and fee-based business have great potential for development, and are the most promising business with the best prospect for China’s commercial banks, especially small and medium ones. Hence, CEB laid the focus of business innovation on two aspects:

First, carry out product innovation in investment banking, relevant debt and capital market. In the past, products in China’s monetary markets were limited to treasury bills, financial bonds and very few corporate bonds; there was very little variety, which greatly affected the development of the monetary market. This year, the newly launched enterprise short-term financing bonds is conducive to adjust the ratio between direct and indirect financing; compared with short-term loan, short-term financing bonds are more transparent, information disclosure system is more strict throughout the procedure of issuance and before the bonds are fully returned, credit rating is carried out from beginning to end, market constraints are more stringent, and risks are relatively lower etc.For these reasons, short-term financing bonds have won wide acclaim from the market.Therefore, it can be expected that, as China’s bond and capital markets witness more rapid development, innovation based on managed liabilities will become the main reform direction for the inter-bank monetary market and the capital market. Accordingly, fee-based business that focuses on underwriting will enjoy a long term development.

Second, strive for a CEB featured “wealth management platform”. Currently, China’s economy is entering a rapid development stage with per capital GDP expected to grow much faster. The bank wealth management market is becoming more and more broad, and will play an increasingly important role. The wealth management assets from personal clients amount to hundreds of billions of RMB. Therefore, as China’s banking sector continues to open up, domestic commercial banks must speed up product innovation and fill up the gaps in the domestic wealth management market. Looking at wealth management products, in the last couple of years, domestic banks have launched more than 20 different brands of domestic and foreign currency wealth management products, totaling more than 100 types. In the future, the focus of innovation in the wealth management market will be on domestic currency products or products that connect domestic currency with foreign currencies. To this end, CEB is actively establishing a featured wealth management platform. On one hand, CEB strives for designing relevant financial instrumentsto carry on foreign currency products with domestic currency products; on the other hand, CEB endeavors to design more individualized wealth management products to meet the different needs of clients on the basis of further segmented clients, and continuously innovate products, channels, technologies and services, promote general wealth management business to the height of real wealth management, so as to enhance the transition from operational bank to excellent bank.

According to the eleventh “five-year plan”, consumption needs will play a more important role in facilitating economic growth; relevant regulatory authorities encourages commercial banks to develop financial product so as to expand the depth and scope of financial consumption. CEB endeavors to develop retail banking, wealth management business, make great efforts to promote business and product innovation. This conforms to national development strategies and guiding policies for the industry, and allows financial consumers to enjoy a wider variety of financial products, and to the largest extent satisfy their individualized needs.

“Accumulating wealth, brightening the future” is CEB’s solemn pledge and heartfelt wish to its clients and the society. The slogan reflects CEB’s steadfast determination to realize its goals of early going public and joining the international leading banks through diligent efforts